Key Market Insights:

• US Dollar's Wild Ride: The dollar has been experiencing significant swings. This volatility is largely driven by ongoing speculation about Federal Reserve Chair Jerome Powell's future and potential changes in monetary policy.
• Pound Shows Resilience: Despite market pressures, the British Pound (GBP) has managed to hold its ground, maintaining a crucial support level. This suggests underlying strength or a period of consolidation for the currency.



Market Recap

 The US Dollar's Tumultuous Day: A "TACO" Effect?

Yesterday saw considerable volatility in the US Dollar (USD), particularly in the afternoon. This was primarily sparked by reports, and then swift retractions, regarding the potential firing of Federal Reserve Chair Jerome Powell by President Donald Trump.

• What happened: Initially, the dollar dropped significantly (nearly 1%) on the news that Trump was considering dismissing Powell. However, these losses were largely recovered by the end of the day after Trump refuted his earlier claims.
• What this means: This rapid whipsaw in the dollar's value is a classic example of what some market observers call the "TACO trade" – short for "Trump Always Chickens Out." It describes a pattern where markets react strongly to a perceived aggressive policy stance from Trump, only for him to later backtrack or soften his position, leading to a reversal in market sentiment. For the dollar, this highlights its sensitivity to political headlines and the perceived independence of the Federal Reserve.

The British Pound Holds Steady (Despite Inflation)

In contrast to the USD's drama, the British Pound (GBP) remained relatively stable throughout the day, even after the release of higher-than-expected Consumer Price Index (CPI) figures in the morning.

• What happened: The UK's CPI data indicated stronger inflation than anticipated, which typically might lead to expectations of higher interest rates and a stronger currency. However, the Pound's reaction was subdued.
• What this means: While higher inflation usually signals potential interest rate hikes from the Bank of England (which would typically boost the Pound), the limited reaction suggests that either the market had already priced in some of this inflation, or other factors are currently influencing the Pound more significantly. It indicates a period of relative resilience for GBP despite inflationary pressures.

 US Producer Prices Go Unnoticed

Earlier in the day, the US Producer Price Index (PPI) figures were released, coming in lower than expected. However, this data had minimal impact on the market.

• What happened: The PPI measures the average change in selling prices received by domestic producers. A lower-than-expected reading typically suggests less inflationary pressure at the producer level, which can sometimes hint at future consumer price moderation.
• What this means: The lack of market reaction to the PPI suggests that, at least for yesterday, the market's focus was elsewhere – predominantly on the dramatic headlines surrounding the Federal Reserve and President Donald Trump's comments. While PPI is an important indicator for future inflation trends, its immediate market impact can be overshadowed by more pressing news.

In essence, yesterday was a tale of two currencies: a volatile US Dollar reacting sharply to political theatrics, and a resilient British Pound shrugging off inflation news.

Today’s Market Update:

Here's a breakdown of the latest market developments and what they signify:

UK Job Market Weakness Fuels Rate Cut Speculation (But the Pound Holds Firm)

Recent data from the UK labour market painted a concerning picture for May. We saw:

• Slower Pay Growth: A deceleration in wage increases.
• Rising Unemployment: An uptick in the unemployment rate.
• Job Losses: A significant reduction of 41,000 jobs from payrolls.

What this means: Collectively, these figures strongly suggest that the Bank of England (BoE) may implement an interest rate cut as early as August. Typically, a weakening job market pushes central banks towards easing monetary policy to stimulate economic activity.

However, despite this seemingly bearish news, the British Pound (GBP) has shown surprising resilience. It has remained relatively stable, finding support against both the US Dollar (USD) and the Euro (EUR) at key technical levels. This suggests that while a rate cut is now a strong possibility, other underlying factors or market positioning are currently preventing a significant sell-off in the Pound.

US Dollar Gains on Hawkish Fed Talk – Attention Now on Key Data

The US Dollar (USD) strengthened overnight, driven by "hawkish" comments from Federal Reserve officials, including Presidents Williams and Bostic.

What this means: "Hawkish" remarks from central bankers indicate a leaning towards tighter monetary policy, such as higher interest rates, often to combat inflation. Such comments tend to boost the currency as higher rates make it more attractive for investors.

Looking ahead, all eyes are on today's releases of US retail sales and jobless claims figures. These will be crucial in determining whether the dollar's recent gains for the month can be sustained.

• Retail Sales: This data provides a snapshot of consumer spending, a major driver of the US economy. Strong retail sales would support the hawkish Fed stance and could further boost the dollar.
• Jobless Claims: These weekly figures offer real-time insight into the health of the labour market. A significant rise in jobless claims could signal a weakening economy, potentially soften the Fed's hawkish tone and weighing on the dollar.

These upcoming data points will provide critical clarity on the US economic trajectory and its implications for the dollar's strength.

17th July 2025

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